In re Sharon

Citation234 BR 676
Decision Date04 June 1999
Docket NumberBAP No. 98-8034.
PartiesIn re Rosemary SHARON, dba Sharon Janitorial, Debtor. TranSouth Financial Corporation, Appellant, v. Rosemary Sharon, dba Sharon Janitorial, Appellee.
CourtBankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Sixth Circuit



J. Ward Holliday, Polk, Scheer, Prober & Holliday, Dallas, TX, argued, for Appellant; Phyllis A. Ulrich, Carlisle, McNellie & Rini, Cleveland, OH, on brief, for Appellant.

Harold Jarnicki, Lebanon, OH, argued and on brief, for Appellee.

Before: BAXTER, LUNDIN, and STOSBERG, Bankruptcy Appellate Panel Judges.


TranSouth Financial Corporation appeals the order of the bankruptcy court that held TranSouth violated the automatic stay and that imposed sanctions under 11 U.S.C. § 362(h). We affirm.

1) Whether the bankruptcy court correctly determined that TranSouth violated the automatic stay by withholding possession of the Chapter 13 Debtor\'s car after demand and tender of adequate protection by the Debtor.
2) Whether the bankruptcy court abused its discretion by imposing sanctions of $2,122.50 on TranSouth for the stay violation.

The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction over the appeal of final orders of the bankruptcy court for the Southern District of Ohio pursuant to 28 U.S.C. § 158(c)(1). The bankruptcy court's order sanctioning TranSouth for violating the automatic stay is a final order. See Javens v. City of Hazel Park (In re Javens), 107 F.3d 359 (6th Cir.1997).

The Panel reviews questions of law and of statutory interpretation de novo. See Hardenberg v. Virginia, Dep't of Motor Vehicles (In re Hardenberg), 42 F.3d 986, 988 (6th Cir.1994) (citing United States v. Brown, 915 F.2d 219, 223 (6th Cir.1990)). The bankruptcy court's factual findings are reviewed under the clearly erroneous standard. See FED. R. BANKR.P. 8013. "The sanction or remedy imposed by the bankruptcy court for violation of the automatic stay is reviewed for abuse of discretion." United States v. Mathews (In re Mathews), 209 B.R. 218, 218 (6th Cir. BAP 1997) (citing California Employment Dev. Dep't v. Taxel (In re Del Mission Ltd.), 98 F.3d 1147, 1152 (9th Cir.1996)). "A bankruptcy court's decision with respect to the amount of damages constitutes a factual finding, and, . . ., we may not upset such findings unless they are `clearly erroneous.'" Archer v. Macomb County Bank, 853 F.2d 497, 498 (6th Cir.1988).


In November 1995, Rosemary Sharon (the "Debtor") purchased a 1995 Mitsubishi 3000 GT automobile. The Debtor made a down payment of $3,450 and financed the balance through a retail installment contract with TranSouth. The Debtor's monthly payments began January 1, 1996. TranSouth perfected its security interest.

The Debtor made the January payment to TranSouth. When the Debtor made the February payment, she was in the process of changing banks. The February check was returned to TranSouth with a notation that the account had been closed. A TranSouth representative contacted the Debtor about the missed payment and told her that TranSouth would not repossess the car if it received two payments-the missed February payment and the March payment. The Debtor tendered a check for two payments to bring her account current. TranSouth repossessed the Debtor's car on March 1, 1996, before the two payment check cleared the Debtor's (new) bank.

The Debtor consulted an attorney. She filed a Chapter 13 petition and plan on March 11, 1996. The plan proposed 60 monthly payments of $1,000 from the Debtor's janitorial business. The plan treated TranSouth as a secured creditor to the extent of the value of the car.

On the same day as the petition, Debtor's counsel contacted TranSouth, advised a Mr. Havenor of the Chapter 13 filing, and requested return of the car. Later that same day, Havenor requested from the Debtor's counsel a copy of the bankruptcy schedules and proof of insurance. These documents, together with the name of the Debtor's insurance agent, were faxed to Havenor that day. The Debtor's counsel contacted Havenor a third time on the petition date to confirm receipt of the documents and to again request that the car be returned. The Debtor's counsel also telephoned TranSouth's counsel in Dallas, Texas and left a message. The next day, Debtor's counsel made two more phone calls to TranSouth's counsel, faxed him a copy of the bankruptcy schedules, and requested again that the car be returned. TranSouth's counsel told Debtor's counsel that TranSouth would not return the car.

On March 15, 1996, the Debtor filed a Motion for Contempt and Sanctions for Violation of the Automatic Stay and a Motion for an Expedited Hearing. The bankruptcy court set a hearing for March 21, 1996. On March 21, 1996, TranSouth filed a Motion for Relief from the Automatic Stay or in the Alternative for Adequate Protection and a brief in opposition to the Debtor's request for sanctions. TranSouth asserted that the Debtor's car was "beyond contemplation of the protection of the Bankruptcy Code" and was not necessary for an effective reorganization because the Debtor could get less expensive transportation. TranSouth contended that its lien was not adequately protected. As a condition for return of the car, TranSouth demanded (more?) proof of insurance and adequate protection payments.

On March 21, 1996, the bankruptcy court ordered return of the car to the Debtor, and set for a later date the Debtor's request for sanctions and TranSouth's motion for relief from the stay. On March 22, 1996, the car was returned.

On June 14, 1996, the bankruptcy court conducted a combined hearing on confirmation, TranSouth's motion for relief from the stay, and the Debtor's request for sanctions. The Debtor was the only witness. She testified that she had operated a janitorial business for nine years and that the business serviced a local college for annual payments that would soon exceed $100,000. The only line of inquiry pursued by TranSouth on cross examination was the number of payments the Debtor made on the car prior to repossession.

The bankruptcy court held that TranSouth's refusal to turnover the car violated the automatic stay. The bankruptcy court awarded actual damages for costs and attorney fees totaling $2,122.50. In re Sharon, 200 B.R. 181 (Bankr.S.D.Ohio 1996).

TranSouth timely appealed.

A. Withholding Possession of the Debtor's Car After Demand and Tender of Adequate Protection Is the Exercise of Control Over Property of the Estate in Violation of the Automatic Stay.

The filing of a Chapter 13 petition gives rise to an automatic stay of "any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate." 11 U.S.C. § 362(a)(3). Every interest of the Debtor in "property of the estate" is protected by § 362(a)(3).

Possession of the Debtor's car was property of the Chapter 13 estate from the moment of the petition. As the Supreme Court explained in United States v. Whiting Pools, Inc., 462 U.S. 198, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983):

Section 541(a)(1) is intended to include in the estate any property made available to the estate by other provisions of the Bankruptcy Code. Several of these provisions bring into the estate property in which the debtor did not have a possessory interest at the time the bankruptcy proceedings commenced.
Section 542(a) is such a provision. It requires an entity (other than a custodian) holding any property of the debtor that the trustee can use under § 363 to turn that property over to the trustee. Given the broad scope of the reorganization estate, property of the debtor repossessed by a secured creditor falls within this rule, and therefore may be drawn into the estate. While there are explicit limitations on the reach of § 542(a), none requires that the debtor hold a possessory interest in the property at the commencement of the reorganization proceedings.
In effect, § 542(a) grants to the estate a possessory interest in certain property of the debtor that was not held by the debtor at the commencement of reorganization proceedings.

Id. at 205-07, 103 S.Ct. 2309 (internal citations and footnotes omitted).

TranSouth repossessed the Debtor's car before the Chapter 13 petition, but had not disposed of the car. In Whiting Pools, the IRS seized the debtor's property pursuant to a tax levy before the petition but had not sold the property. Whiting Pools requires that the right to possess the Debtor's car became property of this Debtor's Chapter 13 estate. See National City Bank v. Elliott (In re Elliott), 214 B.R. 148, 151-52 (6th Cir. BAP 1997) (citing Whiting Pools for the proposition that a car repossessed before a Chapter 13 petition becomes property of the Chapter 13 estate).

In a footnote in Whiting Pools, the Supreme Court recognized that the right of possession becomes property of the bankruptcy estate through the interaction of §§ 541 and 542, subject to one condition precedent and three exceptions:

Section 542 provides that the property be usable under § 363, and that turnover is not required in three situations: when the property is of inconsequential value or benefit to the estate, § 542(a), when the holder of the property has transferred it in good faith without knowledge of the petition, § 542(c), or when the transfer of the property is automatic to pay a life insurance premium, § 542(d).

Whiting Pools, 462 U.S. at 206 n. 12, 103 S.Ct. 2309 (emphasis added). Section 1303 of the Code gives a Chapter 13 debtor "exclusive of the trustee, the rights and powers of a trustee under sections 363(b), 363(d), 363(e), 363(f) and 363(l)." 11 U.S.C. § 1303. Thus in this Chapter 13 case, § 1303 supplies the "usable under § 363" predicate to the Supreme Court's reasoning in Whiting...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT